Diageo, the world's largest spirit producer by sales, has reported much lower profits for last year than anticipated, with a number of factors contributing to this.
Net sales were down to £10.3 billion for the 12 months ending 30 June, a fall of 9 per cent from the previous year. Net profit fell to £2.25 billion from £2.45 billion for the previous year. Earnings before interest and taxes, excluding some items, was £3.13 billion as opposed to the £3.2 billion estimate.
Diageo, the maker of Smirnoff and Guinness, has been one of the many beverage makers to suffer from China's so called anti-extravagance tax, with sales in China declining 5.7 per cent in three months. The company say that this was one of the main reasons overall figures were down.
Diageo has been expanding outside of its main markets of Europe and the US into countries such as India, Turkey and China and acquiring assets in these countries. However, earnings were also hurt by currency devaluations in emerging markets and a tax on one of its beers in Kenya. Organic sales did experience slight growth and rose by 0.4 per cent in the period.
Growth in North America, which accounts for 34 per cent of Diageo's sales, was up by 3 per cent. Western Europe also experienced a slight improvement which Diageo said was due to the focus on new product launches and the success of scotch malts, Ciroc, Zacapa and Johnnie Walker.
CEO Ivan Menezes said "This year our business has faced macroeconomic and market specific challenges that have impacted our top line performance. But we have gained share and expanded margin while continuing to invest in our brands, our markets and our people to create a stronger business that will deliver on the long term growth opportunities of this attractive industry."
Menezes plans to cut annual spending by up to £200 million by the end of fiscal 2017. Volume sales fell in most areas, with the biggest fall in Asia - 20 per cent in China and 25 per cent in South East Asia. The best result for Diageo was in Western Europe, which saw no change in sales volume. The company stated that it expects improvement in emerging market performance in the second half of the current fiscal year.
© 2014 European Supermarket Magazine by Nicole Gernon
To sign up to ESM’s weekly e-zine newsletter, send an email with the subject ‘Subscribe ESM news’ to nicole@esmmagazine.com.
